ServiceNow stock price has crashed and formed a death cross this year as concerns about its pricey valuation and slow growth momentum continue. NOW dropped to a low of $779 this week, the lowest swing since August 7. So, is it safe to buy the NOW crash dip?
ServiceNow stock crashed after earnings
The ongoing ServiceNow stock price crash happened after the company published its quarterly and annual results in January. It initially dropped by 13% after the earnings release and has been in a strong freefall since then.
The most recent results showed that ServiceNow’s business continued doing well in the fourth quarter. Its subscription revenue rose by 21% to $2.866 billion, a strong figure considering that ServiceNow was started in 2004.
These numbers brought the annual revenue figure to $10.6 billion, a 23% annualized increase. Its operating margin improved to 29.5%, while the cash flow margin rose to 31.5%.
The main reason why the ServiceNow stock price crashed is that the company’s forward guidance was a bit soft. It also faced a $175 million headwind because of the stronger US dollar.
Its guidance was weaker because the company has started to embrace a consumption-based monetization approach across its AI and data solutions. It anticipates that the change will see it forego upfront incremental subscriptions.
In line with this, the management expects that its subscription revenue will grow by between 18.5% and 19% in Q1 to between $2.995 billion and $3 billion. It expects that the annual revenue growth will be within this range.
Wall Street analysts expect ServiceNow’s revenue to grow to $13 billion this year and $15.6 billion next year.
Read more: ServiceNow stock is severely overvalued – rating downgrade
Valuation concerns remain
ServiceNow stock price has also crashed as investors focus on its pricey valuation metrics. The company has a market cap of over $173 billion, a high figure considering that its revenue is expected to be at $15.6 billion next year. This implies a 11.5x multiple to forward sales, which is much higher than other companies.
ServiceNow has a forward price-to-earnings (PE) ratio of 49.35, much higher than the sector median of 21. This valuation metric is much higher than that of other companies like NVIDIA, Microsoft, Meta Platforms, and Netflix.
A PE multiple of 49 essentially means that it would take about 18 years to recoup your investment if you acquired ServiceNow, assuming that its growth stalls.
Still, analysts believe that ServiceNow stock has more room to go because of its strong market share and its consistent growth. The company has also become a top player in the artificial intelligence industry. The average ServiceNow stock price forecast is $1,142, higher than the current $843.
ServiceNow stock price analysis
NOW stock chart by TradingView
The daily chart shows that the NOW stock price has crashed from $1,200 earlier this year to about $800. It has dropped to the lowest swing since August last year.
The stock has made a death cross pattern as the 200-day and 50-day Weighted Moving Averages (WMA). This is a sign that the downtrend momentum may continue.
ServiceNow share price has moved to the ultimate support level of the Murrey Math Lines indicator.
Therefore, the stock will likely continue falling as sellers target the next key support at $700 or the 61.8% retracement at $668. A move above the crucial resistance level at $1,000 will invalidate the bearish outlook.
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